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RSE practice questions: ethics and conduct

Ten RSE practice questions on ethics. CIRO IDPC Rule 1400 series covers conflict-of-interest disclosure and the materiality threshold. NI 31-103 §13.4 governs outside business activities; §13.5 prohibits personal financial dealing with clients. Most retail ethics fails are about timing of disclosure, not the existence of disclosure.

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  1. 1

    A Registered Representative is opening a new account and is collecting KYC information. Which of the following items is NOT a required component of the client's financial circumstances under CIRO IDPC Rule 3402?

    Outcome 1.2 · click for answer

    A.Annual income from all sources
    B.Net worth, including liquid and illiquid assets
    C.The client's preferred political party affiliationCorrect
    D.Whether the client is borrowing money to invest

    IDPC Rule 3402 requires KYC to capture the client's financial circumstances, including income, liquidity needs, financial assets, liabilities, net worth, and whether the client is borrowing to invest. Political affiliation is not part of required KYC content.

  2. 2

    A 62-year-old client states that he is 'comfortable taking high risk' but holds only $40,000 in liquid assets and intends to retire in three years. How should the Registered Representative reconcile this risk profile inconsistency?

    Outcome 1.3 · click for answer

    A.Accept the client's stated risk tolerance and recommend high-risk equities
    B.Recognize that risk capacity is limited by short time horizon and modest assets, and document a discussion to align tolerance with capacityCorrect
    C.Refuse to open the account because the client's profile is contradictory
    D.Ignore risk capacity since risk tolerance is the controlling factor under CIRO rules

    CIRO requires the lower of risk tolerance and risk capacity to govern the suitability determination. The RR must resolve conflicts between a client's expectations (willingness) and their ability to endure loss (capacity), and document the resolution.

  3. 3

    A Registered Representative suspects that an 80-year-old client is being financially exploited by her caregiver. The client has a Trusted Contact Person (TCP) on file. Which action is permitted under CIRO IDPC Rule 3276?

    Outcome 1.6 · click for answer

    A.The RR may instruct the TCP to assume control over the account immediately
    B.The RR may contact the TCP to confirm contact information for the client's legal representative or to share concerns about possible financial exploitationCorrect
    C.The RR must notify the TCP before every trade in the account
    D.The RR must refuse all instructions from the client until the TCP signs an authorization

    Rule 3276 permits contacting a TCP to address concerns about possible financial exploitation, mental capacity issues, or to confirm contact details for a legal representative. A TCP has no trading authority and is not a default decision-maker.

  4. 4

    A client refuses to provide a Trusted Contact Person when opening an account. What is the Registered Representative's correct course of action under CIRO requirements?

    Outcome 1.6 · click for answer

    A.Refuse to open the account because a TCP is mandatory
    B.Open the account but bar the client from making any withdrawals
    C.Document the refusal in the client file and proceed to open the accountCorrect
    D.Designate a firm employee as the TCP by default

    Providing a TCP is encouraged but not mandatory. The dealer must request a TCP, and if the client refuses, the refusal must be documented in the client's records. The account may still be opened.

  5. 5

    Which condition must be satisfied before a dealer member can place a temporary hold on a vulnerable client's account under IDPC Rule 3272?

    Outcome 1.6 · click for answer

    A.The client must consent to the hold in writing in advance
    B.The dealer must have a reasonable belief that financial exploitation has occurred, is occurring, or is attempted, or that the client lacks mental capacityCorrect
    C.The TCP must approve the hold
    D.A court order must be obtained before any hold is placed

    IDPC Rule 3272 permits a temporary hold where the dealer has a reasonable belief of financial exploitation or lack of mental capacity affecting the client's ability to make decisions. No client consent or court order is required up front.

  6. 6

    Which statement best describes the Registered Representative's responsibility for KYC information under CIRO Rule 3402?

    Outcome 1.7 · click for answer

    A.KYC collection may be delegated to the client's accountant if the accountant signs a representation letter
    B.The Registered Representative is primarily responsible and cannot delegate KYC collection; KYC must be kept currentCorrect
    C.Once collected, KYC information is valid indefinitely and need not be updated
    D.KYC may be delegated to a junior unregistered assistant provided a supervisor reviews quarterly

    Rule 3402 establishes that the RR holds primary responsibility for KYC, prohibits delegation of the obligation, and requires KYC be kept current through significant change updates and periodic refresh.

  7. 7

    A new client opens a self-directed online trading account at a discount broker. Which obligation applies despite the absence of recommendations?

    Outcome 1.9 · click for answer

    A.Full suitability determination on every trade
    B.Account appropriateness assessment, ensuring the account type fits the firm's offering and the client's circumstancesCorrect
    C.No KYC obligation applies to discount brokerage accounts
    D.The firm must obtain a TCP before allowing any trades

    Under IDPC Rule 3402, order-execution-only accounts are exempt from suitability determination but remain subject to account appropriateness, which considers whether the account type is suitable for the dealer's offering and the client.

  8. 8

    A client wants the Registered Representative to make trading decisions on the client's behalf without prior approval for each trade. Which account type is appropriate for this arrangement?

    Outcome 1.10 · click for answer

    A.Cash account with limited trading authorization
    B.Discretionary or managed account, subject to written authorization and supervisory approvalCorrect
    C.Margin account with a power of attorney
    D.An advisory commission-based account with verbal authority

    Discretionary or managed accounts permit the firm to trade without prior client approval, but require written client authorization, RR qualifications, and head office supervisory approval per IDPC Rules.

  9. 9

    What is the primary objective of the Relationship Disclosure document required under CIRO IDPC Rule 3216?

    Outcome 1.12 · click for answer

    A.To act as a binding contract for trading commissions
    B.To inform the client about the nature of the dealer-client relationship, products, services, fees, conflicts, and reportingCorrect
    C.To replace the need for a fund facts document
    D.To document the client's risk tolerance

    The Relationship Disclosure provides clients with information about the dealer-client relationship, including products and services, account types, fees, conflicts, and reporting. It is a disclosure document, not a contract.

  10. 10

    A Registered Representative is recommending a complex structured note. Which step satisfies the individual-level Know-Your-Product (KYP) obligation under IDPC Rule 3404?

    Outcome 1.16 · click for answer

    A.Reviewing only the marketing brochure produced by the issuer
    B.Understanding the structure, features, costs, and risks of the security and its impact on the client's portfolioCorrect
    C.Confirming the firm has approved the security for sale
    D.Asking another RR who has previously sold the product

    Individual KYP under Rule 3404 requires the RR to understand the security's structure, features, initial and ongoing costs, and risks. Firm approval (firm-level KYP) is necessary but not sufficient.

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FAQ

What's an outside business activity?

Any activity a registrant performs outside the dealer that could reasonably be expected to give rise to a conflict, hold them out as part of another business, or generate income. NI 31-103 §13.4 requires written disclosure to the dealer + client where applicable.

Can I borrow money from a client?

No. Personal financial dealing under NI 31-103 §13.5 prohibits borrowing, lending, gifts beyond firm policy, and joint investment with clients (with limited exceptions for family members under firm review).

What's the gatekeeper obligation?

Registrants are expected to identify and report suspicious activity (AML, fraud, manipulation) to the dealer and to FINTRAC where reportable. Failure to escalate is a regulatory breach, not just a moral one.

Difference between suitability and fiduciary duty?

Suitability (CIRO Rule 3402) is the regulatory floor: the recommendation must be suitable given KYC. Fiduciary duty (common law) applies in specific relationships such as managed accounts and trustee roles. Confusing these two is a frequent wrong answer.

What's the conflict-of-interest disclosure timing rule?

Material conflicts must be disclosed in writing to clients before the conflict crystallizes (i.e., before the trade or recommendation). Generic boilerplate at account opening is insufficient when a specific conflict applies.

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